By Jennifer Johnson Backer

In the past four years, the health care premiums Courtney Liebenrood Ellett has paid for her 12 employees have risen about 70 percent.

Liebenrood Ellett, the founder and principal at Obsidian Public Relations in Memphis, has paid 100 percent of her employees’ premiums since 2009.

“I am certainly watching renewals,” she said. “When you make the commitment to shoulder the entire burden and to go that extra mile for your colleagues, a 30 percent increase year-over-year really does impact your bottom line.”

Beginning in October, Liebenrood Ellett and thousands of other small-business owners will have the option to have employees shop for health insurance through newly created health care exchanges dubbed the Health Insurance Marketplace.

While the Affordable Care Act requires companies with more than 50 employees to pay a fine if they don’t provide affordable and adequate health care coverage to their employees, smaller businesses are exempt from the employer responsibility requirements.

Roughly 96 percent of all small firms in the U.S., or 5.8 million out of 6 million total firms – are exempt from offering health insurance under health care reform, according to the U.S. Department of Health and Human Services. Most large firms with more than 50 employees already offer some form of health insurance coverage to their employees.

Experts say the new health care exchanges could help business owners like Liebenrood Ellett, who want to offer comprehensive health insurance coverage to their employees, but face rising premium costs. Smaller businesses pay health care premiums that are 18 percent higher than what their larger counterparts pay, according to data from Health and Human Services. Over the past decade, average annual family premiums at small firms increased 123 percent, from $5,700 in 1999 to $12,700 in 2009, the data show.

Small-business owners with fewer than 100 employees like Liebenrood Ellett will be able to shop for coverage through Small Business Health Options Program exchanges. The state-based exchanges will allow employers to find qualified plans and to compare prices and benefits. These exchanges are separate than the exchanges designed for individuals, and are expected to have lower premiums than the individual insurance pools.

Geoffrey Lindley, an attorney with Rainey, Kizer, Reviere and Bell PLC, says employers of all sizes are going to face difficult decisions as they sort through the new health insurance coverage options.

“While some businesses may find they can get better insurance through the exchanges … I think it is going to drastically change the pricing,” Lindley said.

Health care reform requires every plan to provide essential health benefits, including maternity and newborn care, prescription drugs, ambulatory patient services, emergency services, mental health coverage, rehabilitative services and devices, laboratory services, preventive and wellness services, and pediatric care. Because not all plans previously included all of these services, Lindley said he expects the average health care premiums to rise.

Previously, health care insurers in Tennessee could raise rates or deny coverage based on pre-existing conditions and other factors like age and prior health history. But the new law will ban those practices – which Lindley says also will raise rates for individual and group plans.

Plans still will have discretion to charge 30 percent more to patients who don’t participate in qualified wellness programs, and 50 percent more for those who smoke.

But for the large part, the exact nature of the pricing on the newly created exchanges is still unknown until the new exchanges are up and running for enrollment on Oct. 1.

“That’s the million dollar question,” Lindley says.

Small businesses don’t legally have to offer coverage now, so those that do offer coverage largely pay for health care premiums to attract and retain the best employees, says Jonathan Edwards, director of client technology at The Barnett Group, a benefits consulting company.

That likely won’t change under the Affordable Care Act – at least, not immediately. Experts say most employers that view benefits as a competitive edge won’t switch employees to the individual exchanges until they know the coverage will keep employees happy and satisfied.

Many of the smaller companies that offer coverage to employees tend to employ higher-wage and skilled workers who view benefits as part of an overall compensation plan, Edwards said.

That’s also the case at The Barnett Group, which has 13 employees. Edwards, who previously worked in an outside sales position for a company in Wisconsin, was lured to The Barnett Group by the position, but also the benefits.

“One of the things that attracted me was the coverage,” he said. “For my company, this may be more expensive, but you can attract the best employees with those benefits. You are trying to set your company apart by offering the best benefits to get people to stay.”

Liebenrood Ellett says she began offering to cover 100 percent of her employees’ premiums as her workforce got older and their priorities changed. Previously, she took her whole team on trips to places like Jamaica to boost morale and celebrate company successes.

“As my team got older and got married and had kids, their priorities changed,” she said. “Their needs were shifting, so the way I handled things shifted.”

Liebenrood Ellett stopped the trips and switched to paying her employees’ health care premiums – a decision that has kept employees very satisfied, but has been significantly more expensive.

Still, she says she has no plans to change that policy in the immediate future.

“It helps retain and attract the best folks,” Liebenrood Ellett said. “There could be a day that arrives when I can’t afford to continue the policy, but I hope that day doesn’t arrive. I take a lot of pride in being able to do that for my team.”

Timothy Finnell, the president of Group Benefits LLC, says he also has many clients who are considering increasing their health care spending to attract talent.

“Some are taking the view that it’s a small price to pay,” he said. “You are going to have some expected migration to the exchanges, but it’s not going to be any giant change. … It will be an evolution.”

Finnell says it could be tricky for some companies to figure out if they are exempt from the employer responsibility requirements mandated by the Affordable Care Act.

That’s because companies with fewer than 50 employees are exempt from offering coverage, but it can be complex to count the 50 employees in some cases. Companies will have to determine the number of employees by counting all employees who work more than 30 hours per week and adding that figure to full-time equivalents (determined by taking an employee’s total part-time hours for the month and dividing that figure by 120).

Regulators are sorting through questions like, is a traveling salesman working when he’s going from Memphis to Nashville? And, are adjunct professors considered full-time employees?

“It’s amazing as we are really getting into it, how many companies are very close to the limit,” Finnell said. “It’s just mind-boggling how complex it is, and how many people will be affected.”

While the natural inclination for some companies might be to reduce workers’ hours to 29 hours or to change the status of some employees to part time, Finnell says that could be very risky.

“I can’t imagine any employer trying to change employment status to avoid the Affordable Care Act,” he said. “They (regulators) will not look kindly on that.”

Roughly 4 million small businesses could qualify for a small-business tax credit this year to help purchase health insurance for their employees, according to Health and Human Services.

Small employers with less than 25 full-time employees and that pay average wages of less than $50,000 are eligible for tax credits. Companies with less than 10 full-time employees, and that pay average wages of less than $25,000 are eligible for the maximum Small Business Health Care Affordability Tax Credits. Any company receiving a credit must contribute at least 50 percent of the total premium cost.

Through 2013, employers will receive a small-business credit of up to 35 percent of their contribution toward the employee’s health insurance premium. That figure rises to 50 percent beginning in 2014.

Edwards, with the Barnett Group, says the government also is offering the tax credits to prevent many small businesses from dropping coverage and switching employees to the exchanges. President Barack Obama’s administration is hoping that the tax credits spur many firms that do not currently offer coverage to do so because of lower premiums and more choices available in the exchanges.

“If you are giving me a guaranteed exchange where there is guaranteed insurability for anyone who goes to it, a lot of small businesses are going to say we have been really biting the bullet to provide this coverage and there is going to be a cheaper alternative for us,” he said. “What smart business owner wouldn’t go to it (the exchanges)?”

Finnell says employees at low-wage companies will benefit the most from the new exchanges and expanded coverage options. High-wage employees and companies are unlikely to see a reduction in their health care premiums, and are more likely to be better off obtaining insurance through their employer, than the exchanges.

“Employers are going to have to look at the economic realities of the situation,” Lindley said.